Greenwire, September 27, 2007

10-YEAR CORPORATE LIABILITY PROPOSED FOR CO2 STORAGE

By Jenny Mandel, Greenwire reporter

Individual states should take the lead in regulating carbon sequestration, a federally chartered commission of state oil and gas experts said yesterday.

The Interstate Oil and Gas Compact Commission report on underground storage of carbon dioxide -- along with a model statute and regulations and an assessment of relevant individual property rights issues -- was four years in the making.

Funded by the Energy Department and made up of state oil and gas regulators and geologists, the commission said states are best suited to regulate carbon sequestration thanks to their experience with other fossil fuel extraction.

Companies would take responsibility for sequestration sites during the operational phase and during the closure period, which the report says would normally extend 10 years after a well has been plugged. During that time, the operator would ensure that the site is operating as expected and not leaking CO2.

After that, the operator would transfer liability to the state, which would have responsibility for the site during the indefinite post- closure period. Drawing on a trust fund comprised of industry-paid injection fees, the state would do all monitoring, verification and remediation after the liability transfer.

"Given the proposed long-term caretaker role of the states, they are likely to be the best positioned to provide the necessary cradle to grave regulatory oversight of CO2 storage," said Lawrence Bengal, the task force chairman. "We envision that the report will result in a substantially consistent system for the geological storage of CO2 regulated at the state and provincial level in conformance with national and international law."

Reaction

Environmental Defense, an advocacy group that has sometimes sought to bridge environmentalist and business positions, participated in the process as an observer. Scott Anderson, a senior policy adviser with the group's climate and air program, described the group's work as "a nice, rational proposal," to form the basis of future work.

He praised the group for addressing "virtually all of the key issues" and for recommending that carbon sequestration sites should examine a wider area around potential sites for unplugged wells than is required under existing oil and gas drilling laws.

"I think it needs to be said that despite the misgivings that many in the environmental community have about the people who regulate the oil and gas industry, the fact is that that industry and its regulators do know more than anybody else about how to inject things underground and what happens to them once they're down there," Anderson said.

Anderson said he expects U.S. EPA, which oversees underground injection and drinking water issues for the oil and gas industries, to soon announce a rulemaking activity around carbon sequestration.

Both the federal effort and those of states leading the charge, including Kansas, New Mexico and North Dakota, will likely take the commission's recommendations into consideration, he said.

On the question of how long the private sector should have responsibility for storage sites, Anderson said that in some cases 10 years could be appropriate but that a decision should be made on a case-by-case basis depending on how well the site is operating. He said the duration over which a site should be monitored would depend on the site's geology, the nature of the operations, and the monitoring technologies selected.

"It's one thing to ask the public to assume liability when we have information that it's a sound project, another thing if we don't know that or we think it's a bad project," he said.

Anderson said a strategy could be devised that would set some liability rules at the start to allow risk financing to be developed, with further liability to be established as the project proceeds.

Liability relief

George Peridas, a science fellow with the Natural Resources Defense Council who follows carbon sequestration issues but was not involved with the draft rules, concurred that they serve as a strong foundation but said they were far from a final regulation.

Peridas agreed with the commission's assessment that state oil and gas regulators would play a big role but said the federal government should establish minimum guidelines for carbon sequestration as they do for oil and gas exploration. He said such federal rules would help states that lack the will or capacity to regulate it for themselves and would help industry as well by making state rules more consistent.

He said the rules should more thoroughly address site monitoring and remediation. And rather than use arbitrary distances to describe the areas that would have to be considered for issues like unplugged wells and ownership rights, he said, distances should be flexible to take into account site specifics.

The NRDC scientist also urged a closer look at the indemnification issues addressed by the commission, citing upcoming research by the World Resources Institute that seeks to quantify potential financial liabilities.

"If you're saying there's not danger, then why do you want to be indemnified?" Peridas questioned. "I don't think it's inconceivable or unacceptable for people to ask for liability relief, but I think it has to be done on a point-by-point basis and not a blanket manner, and it has to be done on the back of much more rigorous data collection and analysis of risk profiles."

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